Why The Bull Market May Be A Jedi Mind Trick

The Bureau of Labor Statistics reported Friday that over 300,000 jobs were created in February, making it the best single-month total since July 2016. And unless you’ve been exploring the Arctic Circle or were kicked off Twitter for expressing politically incorrect views, you know that’s just the latest “great” news about the booming economy, bull market in stocks, and, best of all, the significant new job creation since Donald Trump became president.

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Certainly, there is no denying that the stock market has continued to rise, with the S&P 500 up over 27 percent since 11/7/2016, as of this writing. But as for the overall economy and, specifically, job creation, even the Trump-hating liberal media seems to have fallen for an economic Jedi mind trick. Regardless of single-month spikes like the one that occurred last month, it only takes one click of the mouse to see that job creation continued to fall in 2017, as it had the previous two years. Looking at yearly totals over the past ten years, job creation looks a lot more like a protracted version of the last business cycle leading up to the 2008 crash.

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Total*
2008	8	-81	-55	-229	-184	-154	-213	-277	-443	-475	-759	-707	-3569
2009	-787	-704	-802	-704	-354	-469	-342	-196	-229	-209	12	-277	-5061
2010	18	-73	193	221	522	-140	-78	-16	-63	267	129	73	1053
2011	44	182	254	323	81	234	72	112	233	209	145	201	2090
2012	348	233	264	72	117	68	156	173	194	153	130	243	2151
2013	207	265	156	179	240	158	111	260	201	210	221	93	2301
2014	174	182	261	311	252	306	196	226	284	255	307	251	3005
2015	211	267	78	282	326	191	256	164	88	351	264	234	2712
2016	103	257	235	174	34	285	325	175	264	140	172	180	2344
2017	259	200	73	175	155	239	190	221	14	271	216	175	2188
2018	239	313
	*Total column added to BLS data

A spreadsheet can be worth a thousand words, can’t it? What we’re really seeing isn’t the effects of the policies of either Donald Trump or Barack Obama. Instead, it looks like the predictable pattern of job creation during the recovery after a Federal Reserve inflationary bubble pops. There is a period of annual job losses, followed by a period of steadily increasing job creation, followed by a period of decreasing job creation, and finally another crash. At that point, job losses recur and the cycle repeats.

This particular cycle has simply been drawn out over a longer period by unprecedented monetary intervention by the Fed, including Quantitative Easing and keeping interest rates near zero for the better part of a decade.

Here is another spreadsheet that may be worth two thousand words. It’s the BLS jobs numbers, with the addition of annualized totals, for the years leading up to the 2000 NASDAQ and 2008 Housing Bubble crashes, respectively.

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Total*
1995	327	198	219	162	-17	240	92	252	252	152	146	132	2155
1996	-13	425	265	165	326	281	251	185	213	261	295	171	2825
1997	231	308	312	292	263	264	303	-22	499	344	299	318	3411
1998	272	198	145	280	402	223	130	340	218	201	273	367	3049
1999	117	410	107	372	211	264	328	154	225	394	289	310	3181
2000	218	131	467	293	219	-36	173	-15	144	-15	222	137	1938
2001	-25	74	-28	-279	-41	-121	-108	-146	-250	-328	-297	-177	-1726
2002	-149	-128	-17	-83	17	51	-77	-7	-67	113	6	-170	-511
2003	107	-146	-208	-49	11	-7	19	-46	110	205	3	121	120
2004	167	58	328	254	297	82	45	116	157	348	63	126	2041
2005	147	244	138	358	172	247	371	196	66	86	337	155	2517
2006	282	312	297	168	31	79	206	179	148	12	208	173	2095
2007	234	85	214	59	153	77	-30	-28	96	78	106	104	1148
2008	8	-81	-55	-229	-184	-154	-213	-277	-443	-475	-759	-707	-3569
	*Total Column added to BLS data

Are you seeing a familiar pattern? During the lead-up to the 2000 crash, job creation increased to a peak in 1997, began declining and turned to job losses after the crash. After the early 2000s recession, job creation increased to a peak in 2005, then began declining and turned to job losses after the crash.

The Politicization of Economic Data

The Federal Reserve’s activities have significantly more effect on economic outcomes than anything a particular president or Congress may do.

There is no reason to believe the present cycle is any different, other than being longer for the aforementioned reasons. Job creation appears to have peaked in 2014 and began declining, relatively unaffected by the change in presidents. That’s also consistent with the position long-held by this writer that the Federal Reserve’s activities have significantly more effect on economic outcomes than anything a particular president or Congress may do.

That politicians ignore reality is not surprising. What is surprising is the extent to which the American public is willing to believe political narratives that fly in the face of reality and recent memory. Even within the canard that presidents “manage the economy” and outcomes are significantly affected by their policies, there is selective amnesia about how they supposedly performed.

It is now accepted truth across a majority of the mediasphere that Bill Clinton managed the economy well, George W. Bush contributed significantly to its collapse, and Barack Obama inherited a deep recession and steered the economy through a dramatic recovery. That’s a nice story but for a few facts that aren’t in dispute.

For starters, the 2000 NASDAQ crash occurred while Clinton was still president. George W. Bush also inherited a deep recession that everyone seems to have forgotten about. And economic data during Obama’s tenure look almost identical to those during Clinton’s and Bush’s, apart from the cycle being longer.

But perhaps the most bizarre politicization of economic data may be courtesy of President Donald Trump, who seems to vehemently disagree with Candidate Donald Trump in terms of just what is going on.

That politicians ignore reality is not surprising. What is surprising is the extent to which the American public is willing to believe political narratives.

Candidate Promises

In 2016, Candidate Trump correctly called the stock market a big, fat, ugly bubble, blown up by a politicized Federal Reserve. Just months later, he was taking victory laps over the bubble continuing to expand.

He called the jobs and unemployment numbers “phony” while they improved during President Obama’s presidency, but now tweets an end zone dance every time a monthly number looks momentarily encouraging. This in the face of clearly decreasing job creation year-over-year.

During the entire Obama presidency, we heard unemployment claims were decreasing not because the economy was recovering, but because “more and more people were giving up looking for work,” as supposedly shown in the Civilian Labor Force Participation Rate. There was a decline in that rate after the 2008 crash, but it has held steady around 63 percent since 2013.

Suddenly, we don’t hear about it anymore.

Why haven’t any of those who supposedly gave up looking for work during the Obama presidency come back into the labor force? Probably because they didn’t give up looking for work at all. They retired. The participation rate includes everyone 16 years old and older who aren’t employed. And as everyone knows, we’re right in the thick of the baby boomer retirement years. So, one would expect the labor participation rate, including retirees, to decline.

Politicians aren’t the only ones proficient at ignoring reality. Largely, they merely reflect the public’s propensity to do likewise. Donald Trump campaigned on not touching Social Security or Medicare and increasing military spending. Hillary Clinton campaigned on spending even more. No candidate who talks about cutting anything significant stands a prayer of winning a primary anymore.

The Next Chapter

In the relatively near future, several long-term trends will come to a head. The ratio of workers paying into federal entitlements vs. those drawing benefits will reach the critical stage. It’s already fallen from over 41:1 to less than 3:1 between 1945 and 2010. Retiring baby boomers will decrease it even more. Yet, any mention of cutting these entitlements is electoral suicide.

Interest rates have been artificially lowered for so many decades that we now have no idea what the real market rate is. But we’re likely to find out as the rest of the world continues moving away from the dollar as the world’s reserve currency. That, combined with the Federal Reserve’s plan, already underway, to try to normalize interest rates by their standards, and the return of trillion-dollar-plus federal deficits, portends a massive economic correction that may dwarf what happened in 2008.

If the American public continues to respond by merely replacing the current president with one pitching the same size government, with a slightly different distribution of the largesse, it could turn into a long century in the “land of the free.”